What makes a good investment property?

 

If you want to buy an investment property, there are some key factors that could boost its value, says Bindi Norwell of the Real Estate Institute of New Zealand.

Before launching into how many bedrooms and bathrooms you want your investment property to have, unfortunately, the first ‘feature’ you need to cover off is much less exciting. It’s the numbers.

 
 

Do the numbers stack up?

Talk to your bank, financial adviser or mortgage broker about how much you can actually borrow and whether the overall numbers stack up and you can afford it.

It’s likely that your bank will ask you about day-to-day factors such as the weekly rent you’ll receive for a property, the council rates and insurances.

Consider long-term factors such as on-going maintenance and repairs, but also how you’re going to cover the periods when you don’t have a tenant living in the property, paying rent.

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What area is the house in?

It’s the age-old story when it comes to real estate, but location, location, location is important when you’re looking for an investment property.

The simplest way to think about location is from your potential tenant’s perspective. Is it close to good public transport links? Is the property in a good school zone for families? Is it close to parks, cafes, restaurants and shops? Is it close to a university or technical institute that might attract potential tenants?

Check out the neighbours

Is it a leafy neighbourhood mainly made up of families? Or is the area you’re looking at a funky part of town where students or young professionals want to live? Consider the crime rates of the neighbourhood or how close the local police station is to give that sense of safety.

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What about the home’s condition?

While we all might be fans of renovation shows – who doesn’t get inspired by The Block? –  the reality is that renovations take time and money.

If you’re looking at an investment property, it’s important to weigh up any improvement in capital gains with an increase in rent. Again, do your sums.

It might be better to purchase a newer property or one that needs fewer renovations.

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Keep it warm and dry

A warm, dry home is easier for tenants to heat, and as a landlord it means fewer problems with mould and dampness.

With the new Healthy Homes regulations starting in 2019, it’s essential to think about how the new laws will affect a property, particularly whether it’s insulated.

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Is it the right type of home?

A stand-alone house, a duplex, terraced house, or an apartment are all options. Each of these housing types has different advantages and associated costs in terms of body corporate fees and insurance implications. Take this into account.

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Number of bedrooms

A REINZ analysis of annual rental increases highlights how different the regions are in terms of yield.

For example, in Manawatu/Wanganui and Southland, one-bedroom properties saw a greater increase than two-bedroom properties.

But in Auckland, one-bedroom properties saw the lowest increase. It’s worth understanding the regional variances before you purchase a property.

   Average Rent Year-on-Year Change: Quarter 1 2017 vs. Quarter 1 2018

Average Rent Year-on-Year Change: Quarter 1 2017 vs. Quarter 1 2018

Should you get a property manager?

Decide if you have the time to manage the property. You might be better to use a property manager to manage your investment for you.

Many people make the mistake of thinking finding tenants is quick and easy, but the reality is that it takes time to market your rental, hold open homes, find the right tenants, and conduct all the appropriate background and reference checks.

You’ve got to keep on top of all the niggly bits and pieces here and there that happen along the way with tenants. And you may find yourself chasing up missed rent payments!

Make sure you factor in the cost of your own time if you plan on managing your property yourself.

Definitions:

Capital gains: The profit made from the sale of a property.

Yield: Yield is calculated by expressing a year’s rental income as a percentage of how much the property cost. It is different from a return.

First published 17 July, 2018

Story by Bindi Norwell, the Chief Executive of the Real Estate Institute of New Zealand

JUNO does not contain financial advice as defined by the Financial Advisers Act 2008. Consult a suitably qualified financial adviser before making investment decisions. This story reflects the views of the contributor only. Content comes from sources that JUNO considers accurate, but we do not guarantee that the content is accurate.


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